By Incentivizing Debt, We’ve Guaranteed Debt-Serfdom and Stagnation

June 12, 2012 06:50


At a certain threshold, there is no painless way to pay the interest except to borrow more money. That increases the interest payments due next year, and so the “solution” is to borrow yet more next year. – of two minds.com

 

 

By Charles Hugh Smith

EXCERPTS:

Incentivize debt and you create multiple overlapping death spirals.

 

The incentives to take on debt are so ubiquitous that we underestimate their pernicious power to trigger self-destructive behavior.

Want to go to college? Just borrow the money now, with no payments until you graduate. Need some consumerist-retail therapy to lift your sagging spirits? Just use plastic, and pay for the splurge later. Want to buy a house? Hey, the interest on that 30-year mortgage is all tax deductible. It’s crazy to pay taxes when there’s a big fat deduction for mortgage interest.

This same set of incentives works on a national and global scale, too. Put yourself in the shoes of the typical spineless, campaign-donation-dependent politico whose primary obsession in life is clinging to power via winning the next election. Every heavy-weight constituency is protesting any tiny reduction in their share of the Federal swag, so drastic cuts are out of the question. What’s the only painless option? Borrow $1.5 trillion every year to make sure the swag is fully funded and the restive constituencies are quieted for another election cycle.

 

 

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